Rivers of imported wine flowed back: what is happening in the alcohol market

Who benefits from the duty

— The Ministry of Finance and the Ministry of Economic Development are considering the issue of raising duties on imported wine (currently 12.5%). Earlier, the Association of Winegrowers and Winemakers proposed to completely ban the supply of alcoholic beverages from “unfriendly” countries. What is the purpose of Russian manufacturers promoting such restrictive measures and what can their implementation lead to?

Shapkin: protectionist measure. The calculation is to release the most popular market niche – 300-600 rubles per bottle. Such wines account for the main consumer demand. But it is in this niche that Russian wine does not win. Hence the fees. The Association of Winemakers proposes to raise them by as much as 50%, and the leaders of the Kuban – even by 75%. It is clear that such a duty puts an end to budget imported wines. Meanwhile, now, as I understand it, the issue of a complete ban on wines from “unfriendly” countries is no longer being considered. This was stated by the Ministry of Finance. As for duties, probably, 50% will still not be. Maybe they will introduce 25% or a little higher. At the same time, wines that now cost 300 rubles will rise in price to 450 rubles. There will be a serious change for the consumer, as the prices for imported wines will rise and our prices will rise: there will be no competition that puts pressure on prices.

Yudich: The meaning is obvious – the protectionism of the Russian manufacturer, the creation of favorable conditions for him. To date, a fairly large wine inventory has been formed. By the beginning of this year, the inventory balance of Russian winemakers doubled the balance before 2022. The product must be sold. Good inexpensive wine is a way to win over more and more consumers. The Russian producer needs to work hard and produce good and inexpensive wine. Then, perhaps, there will be a breakthrough and people will switch to domestic products. Consumers will see that there are no more inexpensive imported wines and will switch to inexpensive Russian wines. I think that the critical price limit for a bottle for the mass domestic consumer is somewhere in the region of 400 rubles, and everything above is already expensive.

Shvets: The state has invested a lot of money in the development of viticulture in recent years. A lot of vineyards have appeared in Russia. Now winemakers say: well, the whole product is not for sale. The authorities, in order to protect their investments, are forced to come up with some kind of protective structures, such as duties, so that the farms, in which the state has already subsidized colossal funds, remain profitable.

— Pavel, as a producer, do you support raising duties on imported wine?

Shvets: As a producer, it would be good for me if there were no wine in the world except mine. Yes, this is a utopia, but the vector is understandable. The less competition there is, the easier it is for me personally. But at the same time, the lack of competition leads to the fact that the quality of wine does not grow. All producers are well aware of how to improve the quality of their wine. And this improvement is always associated with investment. But producers do not want to invest. And why should they invest when wine is already sold? And if there are problems, you can ask the state to ban imported wine. Therefore, everyone follows the simplest path. But sooner or later the borders will open, even in ten, twenty, thirty years. What will we do with our products when our market is flooded with better and cheaper wine? Closing businesses en masse? It is necessary to create conditions not only for today. You need to think strategically. To create competition, you need to plant a lot of vineyards, create a lot of enterprises, and then, on the contrary, reduce the import duty. When there is a flood of imported wine, of better quality and less expensive, domestic producers will be forced to improve the quality of their product.

Cork under sanctions

— Under the influence of geopolitical factors and sanctions, wine import routes are changing. Georgia this year has become the main supplier of wine for Russia. Having become “unfriendly” Italy, Spain and France lost their leading positions in the domestic wine market at once. What wines are coming to us and in what price categories?

Shapkin: Today Georgia is number one in wine supplies to Russia. Question: where are there so many vineyards? Even if all the mountains and roads are planted with vineyards, it is still impossible to grow enough grapes to make so much Georgian wine out of it. It is clear that imported wine materials are used, and not always of high quality, to put it mildly. Meanwhile, worldwide overproduction of wine. There is every reason to wait for affordable prices for imported wine, if not to raise duties. Plus there are natural factors. What if tomorrow there is a drought, or a flood, or a hailstorm that destroys our crops? What will be on the market in this case? It will be difficult to completely cover the needs of the market. The trend is clear: some surrogates will appear that will replace the wine that has left the market.

Yudich: Georgia is still in the minds of people is a country of wine. It is a fact that the products of this country are in demand in Russia and the loyalty of our consumers to Georgia is high. I don’t see anything strange here. Georgian wine is of quite good quality.

Shvets: When a law was passed in Russia prohibiting the use of imported wine materials in the production of wine, the authors of the law probably guessed that there would be some schemes to bypass this restriction. For example, some of the nearest countries bordering on us will “unexpectedly” begin to increase the volume of imported bottled wine. But Russia consumes somewhere around 1.5 billion bottles of wine a year. They have to be taken somewhere to satisfy the demand. Naturally, they began to bottle it in countries bordering Russia in order to save on the transportation of wine materials. For example, it is difficult to bring bottled wine from Australia. It is easier to bring it in a tanker, and bottle it already on the border with Russia, for example, in Georgia. Therefore, there is now a surge in production in Georgia, this is a normal consequence of the adopted law, a predictable story.

Let’s talk about the fate of our producers. Winemakers had to abandon imported wine materials. There were also problems with the cork, which was supplied from Portugal and Spain. In addition, the cost of a bottle has increased – there are also imported components in glass production. How has the market handled this?

Shvets: We have a cork, a barrel under sanctions. In the Krasnodar Territory, some craftsmen have already organized the production of cork. The cork oak bark itself is allowed to be imported. The import of cork is prohibited. Therefore, now people bring bark from Portugal and cut corks here, in Krasnodar. In general, somehow bypassed this limitation. In terms of barrels, of course, it is difficult. But I think that there are some opportunities to bring it through third countries. Personally, in my household, the supply of corks is for a year and a half, and the supply of barrels is for another two years. Therefore, I am not afraid, because I am a small producer. It didn’t affect my price in any way, and if it did, we didn’t even consider this difference. I would like to note that winemakers all over the world are arguing that the increase in prices for their products is caused by some problem. Everyone wants to raise prices, raise them and will continue to raise them. And the rise in price can be explained by anything, including sanctions. Or now the euro is almost 100 rubles, and a year ago it was 55. Here is a great fight against imports. People simply will not be able to afford to buy imported wine, and its volume will naturally decrease. I mean wines of high quality and high price range. And if we are talking about inexpensive wine, then Georgia will really come to the fore. Well, Belarus, I think, will very soon become a very important wine-producing country, if it has not already become.

Wine will unite and reconcile

— Are there many counterfeit products on our market? Can the tragic story of mass poisoning of false cider be repeated with wine?

Yudich: The cider story is a crime with specific people behind it. Crimes have always been in any era, under any government. As for the product on the shelf, a wine consumer is a person who begins to understand, begins to read something about wine, looks at the label. He will be wary of strange shops and will most likely go to some official retail. Therefore, with a very high probability I can say that such a story will not repeat itself in the wine market. But will the poisoning continue? Yes, they will be repeated, because people always have and will always need alcohol. And until legal alcohol is inexpensive enough, there will be poisoning.

– Is a complete ban on alcohol from “unfriendly” countries possible and how will this change the range of wine counters?

Shapkin: Everything is possible with us. For example, no one imagined that they would ban the use of imported wine materials in Russia. You have to be careful with forecasts. My answer is yes, it is quite possible that there will be a ban on wine from “unfriendly” countries. Another thing is what it will result in later …

Shvets: As a political decision, I think it’s possible. There are people who are quite capable of “pushing through” this kind of initiative. I think that this is not good, the end consumer and the winemakers themselves will suffer from this. In the absence of competition, quality will not increase. France is the winemaking capital of the world. This is a fact that has nothing to do with politics. We take all technologies, agricultural techniques, equipment, principles, approaches from there. But on the other hand, it’s a shame that somewhere since 2014 we can’t sell a single bottle of ours anywhere except in Russia. It’s frustrating that they can sell their products here and we can’t sell ours there.

Yudich: I cannot predict where this initiative will go. But I am against such a ban. Wine is today the little that still connects Russia with the whole world. It is very good that the consumer can go to the store and choose wine, for example, from Europe. It may sound too poetic for our business conversation, but after tasting Italian wine, you can, figuratively speaking, visit Italy for a minute. For many, this is now the only opportunity to “travel”, as the road to Europe has become more complicated. Winemakers all over the world still send wine to Russia, and this is very important! We should not lose touch with the world. Because wine, perhaps, is what will reconcile and unite us.

– How much can prices for imported wine rise and will Russian “quiet” wine rise in price in the absence of competition?

Shapkin: This year there will be no rise in price, because we have overstocked warehouses and enough stocks. It is unlikely that prices will go up somehow noticeably. Maybe for some items there will be a price increase within 5%. But if duties on imported wines are introduced before September 1, then we will see the consequences of this decision already in the autumn delivery, before the New Year. Depending on the category of wine, the level of rise in price will be different. Let’s say that wine that costs 450 rubles now will be sold for 600 at the beginning of next year. This is if duties are introduced at the level of 25%. If the duties are higher, then, accordingly, the prices will fly up.

Yudich: The price on the shelf is often driven not only by shipping and purchasing costs, but also by consumer demand. Accordingly, retail chains will put what is for sale. Then we will get another phenomenon: the quality level in the group of 200-300-ruble wines will decrease. We will get a reduction in quality in each price group. This is a natural process. And, of course, the lower limit of prices will creep up. When demand decreases, prices rise to compensate for costs.

Shvets: I think that prices will certainly rise, and very quickly. If a trading company has imported wine in its warehouse, and the foreign exchange rate has changed, then it will be forced to sell it at a higher price – simply in order to bring the same ones in place of these positions in the future. Companies immediately react as soon as the rate rises. Some stop shipping the product altogether, immediately remove discounts, and some simply convert prices into euros. That is, payments are made in rubles, but many already have prices in euros. All this is immediately reflected in the final cost.

Shapkin: After our conversations, the consumer will conclude that it is necessary to stock up on imported wines in advance – until they are banned or until they rise in price. It will turn out that the protectionist measure that we discussed will turn into its opposite: sales of Russian wines will fall. A kind of wine boomerang is obtained.

Top 5 countries for the supply of “still” wines to Russia

(January – May 2023)

1) Georgia – 24.15 million liters

2) Italy – 23.36 million liters

3) Spain – 20.46 million liters

4) France – 10.04 million liters

5) Portugal – 9.61 million liters

Source: FCS data